As we say goodbye to month seven of winter (but who’s counting?) it’s time to prepare and look ahead to the spring building season.
Is it the right time to build your dream home or a new home? Careful consideration is a must in resource-based communities. There continues to be a noted decline in prices in some sub-markets. There is once again evidence of new homes under construction for owner/builders or as turn-key contracts.
Regulatory requirements have definitely added to the overall cost to build. Building a new home with an intention of resale to make money in one to three years is likely not a get rich quick plan. Perhaps it’s a sign of a maturing stable market.
When building a new home, it’s best to understand what your exit strategy is. As long as you understand your exist strategy you are an informed builder. Cost to build and market value to sell are two different terms. Very often there can be a discount between the cost and the market. The higher quality custom homes can suffer quite a large discount in resource-driven markets vs. urban and recreational areas or prime locations. (Yes, location, location, location makes a difference).
Timing to sell those homes is another consideration. Typically, rural estate or high-end custom homes I would not like to see offered for resale for 15 to 20 years. The homes are a generational home constructed to raise a family. At the end of that timeline, if the home has been well maintained and updated, it will resell very well on the open market. If the home is dated and requires extensive renovations, it will be heavily discounted from the depreciated replacement cost new.
A prestige custom home offered for sale within two to seven years of construction can suffer a very significant discount to the price the market is willing to bear. A prudent purchaser does not typically pay replacement cost new for someone else’s custom home unless there is a significantly time delay or limited availability of vacant lots in the desired location. Again: Location, location, location.
Cost to build is the expense incurred to buy the lot, service, build the home, landscape, etc. Market value is what the market is willing to bear if the property were offered for sale for a reasonable period of time. There has been a noted decline in new home construction over the past several years as a result of the gap between cost and market.
That doesn’t necessarily mean that it’s a bad time to build. It means that if you are financing you will have to come up with a larger down payment. The banks will finance on the cost to build or the purchase price (aka market value), whatever is lower. Building when the market for new home construction is limited may be a very economical time to build. You may have an opportunity to negotiate better construction costs due to availability of trades.
There is never a dull moment in the real estate world driven by the natural resource market. All you need to do is ride the wave and understand the different forces impacting the wave at any given time. There can be opposing forces and no two waves are ever the same when you are involved in the global economy.
Edwina Nearhood is a life-long resident of Fort St. John, with 30 years experience in the appraisal industry.